Strange Bedfellows

A brief history of the profitable, legally challenged relationship between Tucson's daily newspapers

Before he died in 1911, the crusading, innovative and successful newspaper publisher Joseph Pulitzer made sure that his trust-fund daughters got no stock in his company.

It was an act of fear, not cruelty. Pulitzer, who endowed the journalism and literary prizes that bear his name, wanted to prevent the era's smooth operators from marrying his daughters just to get a piece of his newspaper empire.

Now Pulitzer Inc., which has owned the Arizona Daily Star for more than 33 years, is dangling itself in front of media suitors. The likely result will be one, not two, daily newspapers in Tucson. History also could repeat itself, with the owners of the weak afternoon Tucson Citizen purchasing the long-dominant morning Star.

Investors have enjoyed the news that Pulitzer's newspapers are for sale. Shares of Pulitzer stock jumped 17 percent, or $9.44 to $64.75, since Pulitzer emitted the news about two weeks ago. Analysts quoted by Reuters and other news organizations said a Pulitzer sale could bring $65 a share, or $1.5 billion.

The analysts also have acknowledged that media giant Gannett Co. --publisher of the Citizen, as well as USA Today and 99 other papers with a combined circulation of 7.6 million--leads the small group of companies with the strength to acquire Pulitzer.

Under that scenario, Gannett would presumably fold one paper in Tucson and publish a morning edition. The six-day-a-week Citizen struggles with a circulation hovering just above 30,000. Circulation at the Star is around 100,000 on weekdays and 162,000 on Sunday.

But the Citizen and Gannett--the giant chain reported $6.7 billion in revenue last year--have been propped up by an antitrust-defying joint operating agreement with the Star. (Pulitzer had $423 million in revenue last year from all operations.)

Separate for editorial and news functions, the Star and Citizen have, since 1940, had joint advertising, printing and circulation under Tucson Newspapers Inc. The Tucson joint operating agreement splits profits 50-50. It expires in 2015 and provided the test case before the U.S. Supreme Court in 1969 and later in Congress for newspapers in 21 other cities to escape the Sherman and Clayton antitrust laws. The number of joint operating agreements has since dwindled to 12.

Such collusion began in Tucson 64 years ago. The Star, under legendary publisher William R. Mathews and co-owner Clare Ellinwood, had press and labor problems. At the Citizen, William A. Small was in his fourth year as co-owner of the paper with William Johnson. Small and Johnson also were in the fourth year of losses at the Citizen. The remedy was the joint operating agreement for advertising, printing and circulation.

Profits soared. The turnaround was so dramatic that Mathews pleaded for relief from excessive earnings tax. The newspaper bosses sought to explain the sudden surge in cash with illustrations. The infamous "Pig Papers" showed Star and Citizen hogs struggling in a tug of war to reach their advertising and circulation "food" in 1939, and then gorging themselves at joint troughs from 1940 through 1945. Earnings for the first 10 years of the agreement were split 70-30 in favor of the Star on the first $100,000, and equally thereafter. After 10 years, the split was 55-45 in favor of the Star for the first $200,000, and equal after that.

Twenty years later, The Pig Papers were resurrected to embarrass Mathews and Small when the U.S. Justice Department moved to break up what it considered a newspaper monopoly. In failing health, Mathews sought to sell the Star. He had a deal with Thomson Brush-Moore, a growing chain, for $10 million. But the operating agreement with the Citizen gave Small the first right of refusal. Small exercised his option and created, with Citizen stockholders, Arden Publishing to purchase the Star for $10 million on Jan. 4, 1965.

The following day, the Justice Department filed suit against the Tucson newspaper companies charging that Small's acquisition of the Star violated a section of the Clayton Act and two sections of the Sherman Act.

The trial, before U.S. District Court Judge James A. Walsh, began on April 5, 1966 and lasted three weeks. The papers offered a brazen defense. Chief counsel to the papers, Richard J. MacLaury, said in his opening statement that "the agreement provided that Star and Citizen would pool their newspaper assets and cease competition completely in the commercial aspects of the newspaper field. So there is no question here, we make no contention here at all that there was any competition in the commercial end of the newspaper business between 1940 and 1965."

Walsh, whose granddaughter, Gabrielle Fimbres, is a longtime reporter for the Citizen, issued his ruling 21 months after the trial ended. He flatly said the 1940 JOA provided for price fixing, profit pooling and market allocations in violation of the Sherman Act and that Small's acquisition of the Star violated the Clayton Act. Walsh ordered Small and Arden to divest the Star.

Small soon announced he would appeal. But he was denied at the U.S. Supreme Court in a 7-1 decision issued on March 10, 1969. The majority opinion, written by Justice William O. Douglas, seemed to open the door for legislative relief that newspapers around the country were fast seeking. "The only real defense" for the Tucson papers was the failing company doctrine, Douglas said. And the papers did not prove the Citizen was failing in 1940.

Nor did the First Amendment, which guarantees press freedom, apply, Douglas said.

"The First Amendment does not bar or limit newspapers to antitrust laws," Douglas wrote, before quoting a decision in a previous case: "Freedom to publish means freedom for all and not for some. Freedom to publish is guaranteed by the Constitution, but freedom to combine to keep others from publishing is not."

Twice a loser in court, the Tucson newspapers still counted on friendly senators and representatives for relief for joint operating agreements. At age 89, Sen. Carl Hayden, the Arizona Democrat, introduced in 1966 the Failing Newspaper Act, which was then renamed the more sympathetic Newspaper Preservation Act. The late U.S. Rep. Morris K. Udall, D-Ariz., supported the measure, as did most of his colleagues and Senate counterparts.

The issue split the administration of Republican President Richard Nixon. His Justice Department successfully went after the Tucson joint operating agreement, but his Commerce Department backed the Newspaper Preservation Act, dubbed by critics the "Crybaby Publishers' Bill." Nixon signed it into law in July 1970.

Still, the Small family had to divest the Star. Small's son, William A. Small Jr., sold the Star to Pulitzer on April 8, 1971 for $10 million. Pulitzer already owned KVOA-TV and had to sell Tucson's NBC affiliate to comply with laws barring media cross ownership in the same market.

The Smalls sold the Citizen to Gannett in late 1976 for 743,236 shares with a value of $30.4 million.

The papers have since flourished financially, having dodged the antitrust laws that their joint operating agreement was found by the Supreme Court to have violated.

Star reporters and other employees have bristled that their work supports the much-higher-paid Guild reporters at Pulitzer's flagship St. Louis Post-Dispatch. But under Pulitzer, the Star reached a zenith that has not been duplicated, including a 1981 Pulitzer Prize for its investigative stories on the scandal-plagued football and athletic departments at the UA.

Under then-executive editor Bill Woestendiek, the Star had a stable of talented and gutsy writers like Ray Ring, who put himself into maximum security to report about Arizona prisons in 1982; and Jane Kay, who, in 1985, wrote the landmark series on trichloroethylene contamination of the southside water supply and the increased incidence of cancer and other diseases in people who drank the water.

But now, the future of the Star and its economic partner, the Citizen, are very much up in the air.

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